Fincog Overview of BNPL Providers

It’s debatable in what country buy now, pay later first began. While Affirm began offering longer term financing in the United States in 2012, “split pay” offerings really began taking off in Australia with services like Afterpay in 2014, Openpay in 2013, and Zip 2013, and in Europe with Klarna as far back as 2005.

Looking at market penetration, Australia and the UK are further along the adoption curve and have already seen some regulatory scrutiny of the category, which may provide clues about the product category’s future in other markets.

While players like Afterpay and Klarna have successfully expanded across multiple geographies, BNPL remains balkanized, with discrete market leaders emerging in different countries / regions.

An emerging BNPL player that may change this is Paypal. While currently Paypal only offers “split pay” (pay in 4) and longer term financing (Paypal Credit) in the US, UK and Germany, the longtime e-commerce veteran has made clear it recognizes the opportunity and is moving aggressively, leveraging its expansive base of existing merchants.


Why Has BNPL Gained Traction?

There are more payment options than ever — so what is it about BNPL that has attracted such strong adoption from both consumers and merchants?


For consumers, the overriding benefit is convenience. With the growth of e-commerce, “just in time” financing, provided contextually at checkout, has undeniable appeal. While the amount of information a user must supply varies by product, all BNPL providers provide a streamlined, low-friction experience — often requiring no additional fields beyond a merchant’s standard checkout flow.

As a financing choice, “split pay” and some longer term POS financing choices hold appeal vs. traditional financing tools, like credit cards, as they are interest free. Financing that is provided at POS, when interest bearing, is preferred by some consumers as being more transparent, as it is close-ended and thus allows them to understand the full cost of credit upfront — something that’s not possible when using a typical credit card to finance a purchase.


For merchants, the appeal of BNPL is in boosting conversion rates and average order value (AOV). By providing a built-in financing option, often with no interest, BNPL as a payment option can help lower shoppers’ hesitation and thus reduce cart abandonment.

This benefit for merchants doesn’t come without a price; the fee the merchant pays the BNPL provider, the “merchant discount rate” (MDR), can often by 2-3x the merchant discount rate of a typical credit or debit card used at checkout. Merchants are banking on lower cart abandon rates and higher average order values to offset this increased transaction cost.

Fincog Overview of BNPL Distribution Models

BNPL Distribution Models

As the number of BNPL providers has increased and the space has become more competitive, with incumbent players like banks and card networks developing offerings, the approaches to product distribution have also increased.

There are four key distribution models.

  • via merchant: in this model, the BNPL provider is integrated directly at a merchant’s check out (Klarna as a payment method on Adidas’ site) or as part of a platform the merchant uses (Affirm as a payment method on a Shopify seller’s site).

  • via network: in this scenario, a merchant integrates with a network like Mastercard/Vyze or Visa/Chargeafter, which, in turn, has a network of lenders; financing type and fee structure will vary based on the type of lender for a given transaction.

  • via existing bank card (credit card): recognizing the competitive threat from evolving “split pay” and specialty POS lending options, existing credit card companies like Chase and American Express introduced the ability to ‘convert’ credit card charges over a certain amount into an installment-type loan.

  • via white label: basically, the BNPL version of the classic store brand credit card


Buy Now, Pay Later Product Configurations Vary by Country & Provider

While exact product configurations vary by provider and by country, due to regulatory reasons, offerings tend to fall into three main categories.

Split Pay or Pay Later

The most common shorter term option is to split a charge into multiple payments, with a portion paid at the time of the transaction and the balance paid in subsequent installments over a period of about 6 weeks. This option usually carries no (or very little) direct cost to the consumer, though late fees may apply.

Klarna popularized an option to pay within 14 or 30 days (rather than splitting), which makes sense for ecommerce purchases a user could end up returning.

Longer Term Financing - at 0%

No cost financing on a longer term basis is also available from some providers. Most notably Affirm offers 0% financing on pricey Peloton bikes for up to 39 months. These are underwritten as loans (even with no interest), but the economics for the BNPL provider are coming from the merchant via the MDR rather than directly from the consumer.

Longer Term Financing - with Interest or Fees

Depending on the merchant and borrower’s qualification, longer term financing may also be available as an interest-bearing loan, something that Klarna, Affirm, and Zip offer, for example. In this case, the economics for the BNPL provider come from both the merchant and the consumer.

Fincog Overview of BNPL Providers, Ranked by Size

Who is winning the Merchant “Land grab”?

Because presence on merchant websites is a key distribution channel for BNPL providers, there has been a bit of a “land grab” to secure market share by inking deals with key merchants and even more so with platforms serving multiple merchants (Shopify).

While a merchant relationship with a BNPL provider needn’t be exclusive, there are often costs attached (technical implementation, monthly service fee) and diminishing returns that make it less worthwhile for a merchant to onboard more than one BNPL provider.

Thus number of merchants, amount of gross merchandise value (GMV) and exclusive partnerships are good indicators of the defensibility of a given BNPL company’s business.


Looking to the Future of BNPL

With interest from investors and consumers in BNPL continuing to grow, expect the category to continue expanding as VC-fueled BNPL providers battle to capture market share and expand to new geographies. As the trend ages, the sector may see exits or consolidation, with a handful of winners emerging in different countries/regions.


Co-Authors in this Article

Jason Mikula is an independent financial services consultant and publisher of Fintech Business Weekly